Question

What term is used to describe the situation when a firm increases the use of all...

What term is used to describe the situation when a firm increases the use of all output inputs by 100% and output increases by less than 100%?

a.
constant returns to scale.

b.
diminishing returns to scale.

c.
increasing returns to scale.

d.
marginal rate of technical substitution.

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Homework Answers

Answer #1

A firm generally during the production process goes goes to the three type of scales that are

Increasing return to scale

Constant returns to scale and

Decreasing return to scale

When the proportion change of output is greater than the proportion given input then there is increasing return to scale

When the proportion given of input is exactly equal to the proportion of output generated then it is constant returns to scale

When the proportion of output is less than the given proportion of input then there is decreasing return to scale

In the given question since output proportion is less( less than 100%) as compared to given input proportion

So the answer here is decreasing return to scale.

Answer is option B

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